BBVA Asset Management: Going Global in the Battle to Bring Sustainability to the Wider World of Investment

Spanish bank BBVA is working on a global strategy which will affect all of its investment solutions.

BBVA Asset Management embeds sustainability in the process. It has launched a sustainability plan that applies to all of its mutual and pension funds, based on the four pillars of Engagement, Exclusion, Integration and Impact.

Environmental, social and corporate governance (ESG) criteria, as well as sustainability parameters, are taken into account to analyse the potential of investments – as well as the risks involved. BBVA also considers the impact these investments may have.

“The development of these new capabilities and knowledge will allow us to offer new products with a focus on sustainability,” explains Lara Marín, global head of product at BBVA Asset Management, “or that seek to impact certain sustainable metrics. We are convinced this will be of great interest to our clients in coming years.”

“The target for 2021 is to design our own voting policy, aligned with our values and the international best-practice.”

BBVA Asset Management’s plan is aligned with the new European regulatory requirements on sustainable investment.

This focus is nothing new to the organisation. BBVA has offered solidarity funds since 1999, and markets a range of sustainable solutions: three mutual funds and a pension fund. In 2008, GPP, the BBVA Group’s pension fund manager signed-up to the United Nations Principles for Responsible Investment (UNPRI).

The new sustainability plan is aligned with one of BBVA’s strategic priorities: “Accompanying customers in the transition to a sustainable future.”

Back to those four pillars that drive the bank’s decisions:

Engagement

“When we talk about engagement, we basically refer to the ways we interact with the companies in which we are invested, with international organisations and regulators, with other investors and with other stakeholders,” explains Alberto Gómez-Reino, head of sustainable investments at BBVA Asset Management. In practice, he says, commitment is expressed in two ways: voting at shareholders’ meetings, and engagement.

“We have been voting for years at the shareholders’ meetings of the European companies in which we invest, but in 2020 it extended this vote to North American companies, using information from external advisors.

“The target for 2021 is to design our own voting policy, aligned with our values and the international best-practice. Engagement consists of proactive actions to influence and involve investment companies and mutual funds to adopt sustainability practices.

“In all of them, directly or indirectly, we express as a manager the most important aspects of our beliefs in this area. For 2021, our main target is to sign UNPRIs, as GPP did.”

Exclusion

BBVA Group believes that the integration of sustainability in its investment process should not be based on exclusivity. However, in line with best-practice and regulations in some jurisdictions, the exclusion of certain entities has been necessary. Those policies are based on criteria common to the entire BBVA Group.

Black-listed investments include controversial armament deals, and companies facing severe controversy or not in compliance with the principles of UN Global Compact.

Integration

The model for integrating ESG factors into the investment process focuses on the development of an internal rating model for the assets in the portfolio. Integration means using extra-financial information in the decision-making process. “The most common way to do this is through a rating,” says Lara Marín, “which is nothing more than a synthesis of information on a narrow scale. This is useful to measure, make transparent and report on our portfolios in sustainability terms.”

To build the rating, BBVA relies on external data sources. Analysis has shown a positive and growing correlation between a high sustainability score (or low controversy) and better market returns. The rating has a very narrow scale: A, B and C, with A being the best and C the worst, reserved for those assets or companies which should be avoided in portfolios, or for which engagement strategies should be established. This rating will be available for funds, equities, corporate bonds and governments, and will apply to a significant percentage of the manager’s investment universe.

In addition, the selection team of Quality Funds, BBVA’s mutual fund selector, has developed its own methodology for assigning an ESG rating to all third-party funds, based on an evaluation of the integration of sustainability in their investment processes.

Impact Strategy

The UN Global Compact defines impact investing as “the placement of capital in social enterprises and other structures with the intention of creating social and environmental benefits beyond financial return”.

Examples include encouraging green investment through targeted bonds, impact mutual funds, investments in companies aligned with the UN Sustainable Development Goals or indirect impact mutual funds. This is the case for the mutual fund BBVA Futuro Sostenible ISR, FI, which distributes part of its management fee in social and environmental developments. In 2020, this fund distributed more than €1m among 28 solidarity projects. The goal for coming years is to develop a catalogue for implementing impact strategies at various levels, from ideas to specific assets or products.

“In recent years, we have been able to see that the consideration of sustainable criteria in investment management has a positive effect on the profitability of portfolios,” says Alberto Gómez-Reino. “It has also made it possible to reduce portfolio risk and – I believe this is the most important point – it allows us to make more informed and complete decisions.”

BBVA Asset Management is convinced that incorporating sustainability into its business, in addition to reflecting its commitment to society in both the short and long term, also means an improvement in the quality of the investment solutions. “With this plan, we align ourselves with the practices of our most relevant international competitors,” says Lara Marín, “and with the requirements of regulators and the new demands of our clients.”

About BBVA Asset Management

The firm is committed to offering clients solutions capable of meeting their goals. It has a global offer of investment solutions in continuous development thanks to constant innovation. This has enabled BBVA to pioneer suitable products for each “market moment” and each type of client.

Mutual funds are managed by an investment team that follows a solid process with global risk-control and local management centres in Argentina, Colombia, Mexico, Peru, Turkey and Spain. It is a benchmark in Spain for pension funds in the individual and employment segments, meeting the needs of savers. BBVA is also committed to sharing information on retirement via Mi Jubilación (www.jubilaciondefuturo.es), a financial education initiative.

Its products provide a global solution for institutional mandates, Sicav, in Luxembourg, managed portfolios and services for institutional clients.

BBVA Asset Management was a founding member of Spainsif (Spanish Forum for Socially Responsible Investment) and includes socially responsible mutual funds in its range of investment solutions.